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Danes thawing about advice

In Denmark – one of Europe’s least developed consultancy markets – pension funds are still reluctant to turn to external advisers.
Traditionally, says Hasse Nilsson of Alcifor Advisory Services in Hellerup, there has been no real need for the funds – mostly cross-industry pension funds – to seek external help. Board members of the fund take the view that it is all the job of the investment department.
But the pension fund clients which exist are continuing to call on consultants for help with risk management, he says. This stems from the introduction of the traffic light system a few years ago, under which the regulators require the funds to have much more stringent risk controls in place.
As well as this, consultants are also being asked to conduct more professional searches for external managers overseas, he says.
Given the lack of demand for services from pension funds themselves, many pension consultants in Denmark often work as advisors to individual employees. Since all pension plans in the country are defined contribution, requests for actuarial services are relatively rare, says Ulla Plesner, managing director of Mercer Human Resource Consulting in Virum.
“Many pension consultants work as advisers to the individual employees designing their own individual needs for insurance and saving,” she says. In this situation, the issue is which of the new models for saving is the most appropriate. It could be unit-link, average interest or guarantees.
“Some years ago all insurance companies offered more or less the same products, the same interest rates and high guaranteed returns on investment,” she says. But this has all changed. These days, many employers use pension consultants to evaluate their existing pension plans.
The four most important players in the Danish consultancy market are the internationally-based consultants and brokers Willis, Aon and Mercer, and Complet – a local broker company, says Plesner.
She sees no particular advantages for the international consultancies – in fact it is the opposite. Christian Witzel of Willis Actuarial and Consulting Services in Hellerup believes it is important for a consultancy to have local knowledge as well as an international network — but only when the business reaches a certain size.
But between consultants in Denmark, he says, market positioning has changed. This is due to more restrictive legislation and demands for licenses which have made the smallest broker businesses unprofitable. The three largest brokers serve around 70% of the market with a number of minor brokers servicing the rest, he says.
“We have local consultants doing very well as a result of their local knowledge, and as long as the business is of modest size it’s possible to outsource the part of a deal requiring international/global relations,” he says.
Plesner says most clients are looking for a more ongoing relationship rather than just coming to a consultant for one-off advice. “Mostly for benefit design, design of pension policy, implementing of pension plans, communication to employees,” she says.
“In the market for pension consultancy the clients have historically been looking for a broader relationship with a consultant,” says Witzel, and the way the market is structured, this will probably continue to be the case. But Willis does sell more one-off advice, because this ties in with its effort to make the cost structure more transparent.
But Nilsson says that pension fund clients are more likely to come to a consultant for one-off advice. The kind of retainer relationships that exist in the UK and US are rare in Denmark, he says.
Although banks sometimes offer advisory services, consultants don’t see them representing any credible competition. They can’t provide independent advice and customers know this, says Plesner. Neither are investment managers competing on the territory of consultants, because they are more focussed on the upper market, she says.
As far as fees are concerned, the Danish market has traditionally been based on commission, but it is now changing to net-pricing. This is a new situation and some resistance can be seen in clients’ willingness to pay fees, but in general it is too early to say, says Plesner.
Willis’ key business in Denmark is consultancy on choice- and administration of pension and benefit schemes for corporate customers. This year, says Witzel, Danish consultants face a few issues resulting from various political discussions which have taken place recently.
In May 2003, an independent committee formed by the ministry of economics and commerce completed its report on the pension market in Denmark. This report is aimed at liberalising the market, and stimulating competition and freedom of choice for the pension saver.
“The key issues in this report is freedom of choice and transparency and these issues are indeed the ones facing the consultants,” says Witzel.

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